Danone and Chinese dairy Mengniu have announced plans to set up a dairy venture in China – five years after a similar agreement ended in just 12 months.

The French food giant today (20 May) announced two deals involving Mengniu.

One will see the two companies combine their yoghurt assets in China to form a venture that will produce and distribute products around the country. Danone will hold a 20% stake in this partnership, which will have 13 plants across China and, the French firm, claimed a market share of around 21%.

Danone’s second agreement is with state-owned food group COFCO, the largest shareholder in Mengniu. The two sides have formed a second venture. The state-backed group will sell some of its shares in Mengniu to the venture; COFCO will hold a 51% stake in the venture, with Danone owning the rest.

Through this agreement, Danone will become a shareholder in Mengniu, indirectly owning 4% in the company. Danone said it aimed to own more of the business “based on market conditions in the future”.

In 2007, Danone and Mengniu ended a venture in China that had seen the two companies produce and distribute fresh dairy products in the country. At the time, the companies said the business conditions for the venture had not been met.

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By GlobalData

Danone will invest around EUR325m (US$418.3m) as a result of the two agreements. Today, Danone chairman and CEO Frank Riboud said the new deals would help the Activia owner boost its presence in China. “Joining the strengths of Danone, COFCO and Mengniu will create the winning combination to unlock the potential of the fresh dairy products category in China. Backed by COFCO’s extensive expertise in the Chinese food industry and by Mengniu’s nation-wide leading platform in the Dairy sector, our brands will benefit from significantly wider reach to the largest number of Chinese consumers,” he said.

Mengniu already works with another European dairy group in China – Arla Foods. The two companies have sold powdered milk in China since 2005. A year ago, Arla and Mengniu announced a similar deal that saw the European co-op become a shareholder in the Chinese firm and that said the two companies would work closer together in dairy.

Arla and Mengniu insisted the separate deals with Danone would not affect their own agreements.

“Arla welcomes Danone as Mengniu’s partner in the locally produced chilled yoghurt category,” Finn Hansen, Arla executive vice president and a member of the Mengniu board, said. “Together with our ongoing initiatives in the Arla/Mengniu milk technology center in Beijing, we are confident that Danone’s engagement in Mengniu will increase consumers’ trust in locally produced dairy products – for the benefit of all players in the Chinese dairy market.”

Mengniu CEO Elaine Sun said the company’s partnership with Arla was “successful” and added: “Mengniu is very pleased to partner with the world’s leading fresh dairy company Danone, introducing its international expertise in product research and development, brand management and sales and marketing, which will strengthen our technical innovation capacity in the fresh dairy product market and help us to deliver products of wider range and higher quality to consumers.”

The new deals between Danone and Mengniu are subject to regulatory approval but the companies expect them to be finalised “in the coming months”.